Lecture 4-5

Consumer Markets

• Incomes:
  • Very low, mostly low, very low and very high, low, medium and high, or mainly medium incomes
• Savings, debts, and credits:
  • Consumers with the same income can have different living standards depending on their savings, debts, and needs (health, childcare, transport)
• Ecological/Physical Environment:
  • Companies creating environmental solutions have a competitive advantage
  • Intention-behavior gap in green consumption, and some companies engage in greenwashing
• Social, Cultural, and Demographic Environment:
  • Population growth has implications for business practice
  • Age mix of populations affects demand for certain products (e.g., toys for younger, medical services for older)
  • Cohorts: groups of individuals with similar values, preferences, and purchase patterns shaped by "defining moments"
  • Diversity of marketing: countries vary in composition (ethnicity, religion, etc.)
  • Educational backgrounds shape interests, preferences, and purchase patterns
  • Household patterns: traditional households, single households, and changing family structures

Technological Environment

• One of the most dramatic forces shaping consumers' lives and challenging for firms
• New technologies influence the economy's growth rate and create long-term consequences that are difficult to forecast

Marketing Segmentation and Targeting

• Mass marketing: one offering for all, creating the largest potential market, lower costs, and lower prices or higher margins
• Micromarketing: alternative to mass marketing, more common in today's competitive landscape, with four levels: segments, niches, local areas, and individuals
• Segment group marketing: grouping customers based on similar needs and wants, enhancing the chance to positively differentiate offerings from competitors
• Niche marketing: targeting specific segments or niches with tailored products or services

Business Markets

• Organizational buying: decision-making process by which formal organizations establish the need for products and services
• Business market: all organizations that acquire goods and services used in the production of other goods and services sold, rented, or supplied to others
• Fewer, larger buyers than in consumer markets, with often a symbiotic relationship between suppliers and buyers
• Professional purchasing: trained purchase agents follow organizational purchase policies, constraints, and requirements
• Multiple buying influences: more people involved in and influencing purchase decisions in B2B than in B2C settings

Buying Process

• Problem recognition: someone in the company recognizes a problem or need that can be met by acquiring a product or service
• General need description: determining the general characteristics and required quantity of the needed item
• Product specification: developing the technical specifications of the item
• Supplier search: identifying appropriate suppliers through various means
• Proposal solicitation: inviting qualified suppliers to submit proposals
• Supplier selection: specifying desired supplier attributes and evaluating proposals
• Order-routine specification: negotiating the final order and delivery details
• Performance review: periodically reviewing the performance of the chosen supplier

Marketing Environment

• Company's environment: global competition, faster information and communication flow, increased business complexity, and rapidly changing consumer needs and wants
• Marketing environment: microenvironment (customers, suppliers, distributors, agencies, and competitors) and macroenvironment (trends and technological advancements, social, cultural, political, ecological, and legal forces)
• PEEST: acronym for the five overall forces: political, economic, ecological, social, and technological

Political/Legal Environment

• Laws, government agencies, and groups influencing and limiting organizations and individuals
• Trends: increased business legislation and growth of special interest groups

Economic Environment

• Purchase power depends on income levels, prices, savings, debts, and credit availability
• Trends that influence purchase power can have a powerful impact on businesses

Market Targeting and Positioning

• Market targeting: selecting the most attractive market segments to target
• Effective segmentation criteria: measurable, substantial, accessible, differentiable, and actionable
• Positioning: designing the company's market offering and image to occupy a distinctive place in the target market
• Points-of-parity (POPs): attributes or benefits that are not unique to a brand
• Points-of-difference (PODs): attributes or benefits that are strongly associated with a brand### Market Segmentation
• Niche markets: small in volume but have attractive profit and growth potential; marketers seek to be the "large fish in the small pool" by providing the best customer-perceived value.
• Local marketing: tailoring marketing programs to target specific local groups, which can increase manufacturing costs and reduce profitability, but allows firms to respond to local requirements more effectively.
• Individual marketing: customized marketing where customers become integral to the market offering and design processes, with offerings developed to meet individual needs.

Bases for Segmenting Consumer Markets

• Two broad groups of variables: descriptive characteristics and behavioral considerations.
• Geographic segmentation: dividing markets into different geographic units, considering regional, rural, and urban characteristics.
• Demographic segmentation: dividing markets based on age, life cycle stage, gender, generation, income, and social status.

Demographic Segmentation

• Age and life cycle stage: many brands offer product lines targeting children, adults, and older consumers, and sometimes even within these age groups.
• Life stage: defines people's major concerns and creates new market segments and requirements in existing markets.
• Gender: differences based on biology and socialization influence marketers' strategic decisions.
• Generation: may have similar purchase preferences based on shared experiences and values.
• Income: established segmentation practice in several product and service categories.
• Social status: classified using criteria such as profession, property, education, and income, influencing purchase preferences.

Psychographic Segmentation

• Dividing buyers into groups based on personality traits, lifestyle, or values.
• Psychographic profiles are developed based on AIO factors, describing individual lifestyles: activities, interests, and opinions.

Behavioral Segmentation

• Occasions: distinguishing buyers according to when they develop a need, make a purchase, or use a market offering.
• Repositioning: companies must be prepared to make proactive and reactive positioning decisions depending on market conditions, such as when a competitor launches an offering that is as good as or better than the own brand.

Differentiation Strategies

• Cost leadership: developing and sustaining cost/efficiency gains by offering a acceptable substitute to competing offerings from a reduced cost base.
• Distinctive superior quality: creating strong customer-perceived value for offerings through the right quality attributes and transactional attributes.
• Differentiation strategies: attributes, benefits, or values, personnel, channel, and image differentiation.

Customer Value, Satisfaction, and Loyalty

• Customer-perceived value: the difference between potential customers' evaluations of all the benefits and costs of a company's offering and the perceived alternatives.
• Customer satisfaction: a person's feeling of pleasure or disappointment resulting from comparing a product or service's perceived performance to expectations.
• Highly satisfied customers are more likely to be loyal and buy more from the company, while being less price sensitive and costing less to serve.

Monitoring Satisfaction

• Periodic surveys, direct questions about customer satisfaction, repurchase, and word-of-mouth.
• Customer loss rate, mystery shoppers, and managers examining sales situations to identify weak and strong points.
• Monitoring competitors' performance, customer lifetime analysis, and dealing with customer complaints.

Dealing with Customer Complaints

• About 25% of the time, customers are dissatisfied with the purchase, but they only complain on 5% of cases.
• Complaining customers: 50-75% continue doing business with a brand if it handles the complaint satisfactorily, while almost all continue doing business if the complaint was resolved quickly.
• Recommended to make it easy to complain, handle complaints quickly, have empathetic staff, and not blame the customer.

Market Offering Quality Dimension

• Customer-perceived quality – customer-perceived price = customer-perceived value.
• Quality: the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

Maximizing Customer Lifetime Value

• The most profitable customers generate the majority of profits, whereas the least profitable customers can substantially reduce profits.
• Customer profitability analysis: revenue exceeds costs for attracting, selling, and servicing customers over time.
• Ways to improve the value of a company's customer base: reduce customer defection, extend existing and future customer relationships, enhance growth potential, make low-profit customers more profitable, and pay more attention to high-value customers.